I'm a deputy editor at Forbes, where I cover venture capital and startups and produce Forbes' annual Midas List. Since joining Forbes, I've helped send a bad guy to jail, picked the world’s most powerful people, covered a dispute between a drug company and its unwitting trial subjects, interviewed Dean Kamen and Geoff Canada, persuaded Hugh Hefner, Karl Rove, and Angela Merkel to work with me, and shared a Po-Boy with the world’s biggest tree-cutter. My journalism career began the day I saw my first pitch (ever) land on the front page of Sunday’s Post. I earned my bachelors from Princeton, my masters from Stanford and had a short (but hopefully forgivable) stint as a consultant in between. You can catch my Twitter missives @nicoleperlroth.

Venture Capital's Pawnbroker

It’s not just Al Gore and Ashton Kutcher anymore. Larry Summers, Mary Meeker and Biz Stone all recently joined venture capital firms. Blogger Michael Arrington kicked off quite a kerfuffle when he announced he was starting his own venture fund.

Corporations are getting in on the action too: AOL is the lead investor in Arrington’s CrunchFund, Nike recently set up its own startup incubator and Comcast just launched Comcast Ventures, a $750 million fund. Even the NFL’s drinking the Kool-Aid: The league is pooling owners’ money into a VC fund to back sports-related technology startups.

It’s far too early to say how these funds will fare. But the last time this many rookies piled into the venture capital business it did not end entirely well. Remember Enron and Worldcom? Both had venture funds. So did former San Francisco 49ers tackle Harris Barton and defensive back Ronnie Lott. The two cofounded HRJ Capital LLC in 1999 and showered capital from the likes of Peyton Manning and Barry Bonds on startups at bubble-era valuations—only to watch their fund implode ten years later.

Venture capital is now regaining some of its late 90s luster thanks to the successful IPOs of LinkedIn, Pandora, Groupon and Facebook’s much anticipated public offering in 2012. But an inconvenient truth remains: Casinos always win and suckers inevitably lose their shirts.

At the NASDAQ’s peak in 2000, there were 1,022 venture capital firms. Less than half are alive and kicking today. For the past ten years, VC firms returned— on average—an abysmal negative 4.6% to their investors. They would have been better off blindly throwing that money at the Dow Jones Industrial Average (2.5%) over that same period, according to Cambridge Associates.

If history is any guide, the more dumb money that chases startups at sky-high valuations today, the more distressed sellers there will be trying to unload their shares down the road.

That should ultimately bode well for seasoned secondary investors like Hans Swildens.

In venture capital circles, Swildens is known as something of a pawnbroker. His secondary fund, Industry Ventures, has a knack for buying startup scraps on the cheap and turning them around for a tidy profit. The firm is still picking over the remains of firms that raised large funds at the bubble’s peak in 2000 and are now well past their ten-year time limits with limited partners anxious to cash out. Swildens estimates over 900 firms fall into this category.

Industry Ventures' Hans Swildens

Swildens first set about acquiring secondary stakes in companies in the wake of the dotcom crash in 2002. Back then he was buying stakes from distressed corporations looking to quickly unload their venture portfolios and nervous limited partners and founders looking to free up illiquid assets. He acquired Enron’s venture portfolio in a bankruptcy proceeding in 2002. In 2003, he acquired Bowman Capital’s venture portfolio at a steep discount. Bowman had formed a $500 million fund at the top of the bubble. Less than four years later, it was forced to liquidate its holdings to Industry.

“The valuations paid in 1999 and 2000 were fake,” says Swildens. “By 2002, everything sold at a loss. Most things we purchased were between 70 and 90 percent off their original invested capital.”

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